Archive for the ‘Business and Investment’ Category

Watching the acquisition of Genentech by Roche has been a fascinating process. I wasn’t so interested in the eventual price paid per share, but whether Basel, Switzerland-based Roche, one of the oldest and most traditional pharma companies, could preserve the special science-based culture at Genentech that made it the world’s pre-eminent biotech company. Would Genentech’s top scientists stay in the San Francisco Bay Area? Could Roche successfully integrate a free wheeling West Coast culture into an East Coast (and indeed, European based) organization?It will take time before this question will ultimately be answered. However, the signs are that Roche doesn’t want to mess things up.

This was illustrated by the recent stunning announcement from Roche that it was resigning from the Pharmaceutical Research and Manufacturers of America (PhRMA), the chief trade association and lobbying group of the US pharmaceutical industry, in order to join the Biotechnology Industry Organization (BIO), the trade association for biotech. This announcement, coupled with the decision to move many of their scientific research programs from the East Coast to the West, told me that Roche was serious in their desire to remake their own culture in Genentech’s image. We’ll see over the next six months or so if Roche can hang on to Genentech’s key employees and culture, now that they have begun their restructuring of Genentech, including employee layoffs and buyouts.

If you are buying a research organization both for its novel drugs and the culture of innovation that created them, it makes sense to do what you can to preserve that culture. I discovered the cultural divide that separates pharma from biotech when I was first looking for a job in the industry. The contrast between pharma and biotech couldn’t have been more striking. A job interview at “Big Pharma” introduced me to scientists, dressed in jackets and ties, who spent most of their time devising new types of screening assays against which the company’s library of chemical compounds could be tested. In marked contrast to the scientists, lab assistants wore overalls with their names sewn on the front in a style that was strangely reminiscent of auto mechanics. If hired, I was told that I could spend as much as 20 percent of my time doing any research of my choosing, as long as my primary focus was on developing new screening assays. Promotions and long-term success at the company were based on your success in setting up these assays, not on the other work that you did. My interpretation of this time-split? The company thought the screening work was so boring that in order to hire people, they needed to allow them at least a small portion of time to do something that might actually be of intellectual interest.

Contrast this with what I found in biotech. Everyone in the organization seemed to dress in the same casual style that I had become accustomed to in my grad school and post-doctoral academic environments. An egalitarian system was in place where lab assistants with talent and drive (but no advanced degrees) could advance to the same scientist level as newly-hired PhDs. All of my time was to be spent exploring avenues of the company’s research focus in immunology and oncology. This would involve truly cutting edge experiments that held the promise of breakthroughs in understanding the causes and treatments of disease. Data could be published in top-flight journals, and the company would (and did) support my success by filing patents on my work and allowing me to talk about my work at conferences around the globe.

In the end, it really was a simple choice, and I leaped into biotech at Seattle-based Immunex in 1988. The strong science focus allowed me to ignore the fact that biotechs couldn’t offer the economic stability of traditional pharmaceutical companies. Yet this supposed advantage turned out to be an illusion, as Big Pharma companies have continually laid off thousands of researchers in recent years.

You know the old joke that there are two sides to every issue, and a politician usually takes both? Well, while it’s a bit of an over-simplification, there are two kinds of pharma/biotech cultures. Those that innovate, like Genentech and Immunex, and those that buy innovation, like most of Big Pharma. Companies that choose to innovate need to have a culture in place that will lead to novel discoveries that can be exploited in a clinical setting. But how does one set an innovative culture in place? What are some of the key factors that can be used to create a culture of success in biotech research? Let me share a few thoughts:

Understand that cutting edge research cannot be done on a deadline

As one of my grad school mentors used to tell me “if it was easy, somebody else would have already done it.” While one should always be held accountable for making progress, it is impossible to predict exactly when a particular protein might be cloned, a novel pathway identified, or a small molecule inhibitor developed. As a result of this, companies need to employ a diversity of approaches in their research programs. Some may bear fruit right away, others years from now, and some possibly never. Diversification is every bit as important in biotechnology as it is in personal finance. Companies that invest in only one scientific line of inquiry may find, like some of Bernie Madoff’s investors, that they rue the day they decided to put all of their eggs in a single basket. Many wanted to believe that technological breakthroughs, like the sequencing of the human genome, would translate in short order into new drugs. This is hopeful yet misguided thinking, because biology is amazingly complex, and advances based on this achievement are still years away.Provide support personnel and equipment to grease the wheels

If you hire people to make breakthrough scientific discoveries, give them the support necessary so they can focus on their core mission. This means administrative assistants to help with manuscripts, photocopy papers, and conference registrations. Employ skilled graphic artists to craft scientific illustrations and figures to accompany seminars and manuscripts. Hire lab managers to order supplies, make media, and stock reagents. Buy the sophisticated equipment that will enable them to do cutting edge research. Do as much as you can do enable your scientists to do excellent science.

Hire the right mix of people

Advances in science spur new thoughts and new innovations. Having the proper mix of people to exploit these breakthroughs are critical to a young company. You need scientific acumen, skilled problem solvers, leadership skills, vision, and the organizational structure to get them all to work together. Science fiction movies are often filled with images of quirky scientists who have difficulties getting along with anybody, yet somehow save the day with their brilliance (exemplified by Jeff Goldblum in Jurassic Park, The Fly, or Independence Day). However, I find this doesn’t work in the real world. You need people who know how to play well with others in the scientific sandbox.

Leave scientific decisions in the hands of scientists

This seems obvious, but many biotech and pharma companies are led by individuals (often MBAs or lawyers) who know Wall Street inside out, but couldn’t distinguish a Northern blot from a Western blot, even with a compass and a GPS system (if you didn’t get that joke, you are one of those people). While companies without competent employees in all functional areas will have problems, one must trust each group to make the right decisions, and be held accountable for the work that they were hired to do. Cross training across job functions is helpful in gaining an appreciation of the bigger picture, but it is critically important to recognize that a research organization will ultimately live or die based on its research. Big pharma’s takeover by their marketing wizards at the expense of their science programs has led them to the precarious financial positions that they find themselves in at present.

Abandon “academic” constraints that stifle innovation

Put simply, this is just a reminder that research programs should have a significant component of “thinking outside of the box”. In a recent New York Times article, Gina Kolata illustrated how funding agencies such as the National Institutes of Health push academic researchers to avoid innovative research by not funding ideas outside of the mainstream. Since many industry researchers cut their scientific teeth in academia, it’s challenging to switch their mentality toward a culture that rewards, and doesn’t punish, innovation. Industry thrives on this type of thinking, with people who are willing to explore new concepts, ideas, and approaches.

I’ll save for another column a detailed explanation of why I think Roche felt compelled to implement this change in their culture. Here’s a hint: biologics comprised five of the top ten selling drugs in 2008, are expected to hit $100 billion in sales in 2011, and are not nearly as vulnerable to generics as small molecules. Many of the cultural issues that I address above will not be cheap to implement. Based on what I have seen of the industry in recent years, there is currently a bias against financing the types of organizations that have these research cultures as being too slow and too expensive, resulting in too long a time period to recoup investments. The lengthy time frame serves to drive potential investors into other industries, like software, where financial returns can be achieved much more quickly. But there really aren’t any shortcuts in biotech when it comes to innovation. I believe the high failure rate of drugs in clinical trials in recent years can be blamed on them being rushed into the clinic for financial reasons when they were not really ready for prime-time. Companies that aspire to be the next Genentech have to be prepared to establish a kind of science-driven culture at their foundation, and invest in it over the long haul, however financially unpopular it may be at the moment. A solution to this dilemma will not easily be found, but is certainly worth searching for. Those of us who follow the industry closely look forward to seeing how the next few years play out in terms of who is ultimately successful in the industry, and why.

Source: xconomy.com